Banks Can Compute 36(1)(viia) on Total Income Including Capital Gains: ITAT Ahmedabad

Nutan Nagarik Sahakari Bank Ltd. Vs PCIT (ITAT Ahmedabad)

Assessee, a cooperative bank, filed ROI declaring income of ₹17.15 crore. AO completed assessment u/s 143(3) r.w.s.144B accepting returned income. PCIT initiated revision u/s 263 on two issues: (i) deduction u/s 36(1)(viia) allowed by AO on “total income” including capital gains, & (ii) omission to apply s.14A for exempt interest of ₹2.64 crore from tax-free bonds. PCIT held AO failed to examine these issues & directed recomputation restricting 36(1)(viia) to business income only & to apply Rule 8D for 14A disallowance.

Before Tribunal, Assessee argued that AO had examined 36(1)(viia) during assessment—computation was in Schedule BP & detailed replies to notices u/s 143(2)/142(1) were on record. Deduction is statutorily based on “total income” as per clear language of s.36(1)(viia), read with s.2(45) & s.5. On s.14A, Assessee submitted that only income-yielding investments should be considered, with a maximum disallowance of ₹3.55 lakh.

Tribunal held that s.36(1)(viia) uses the expression “total income” without qualification & judicial precedents (Tara Agencies, Orissa Warehousing, Ajmera Housing, Anjum Ghaswala) mandate adherence to plain statutory language. Deduction cannot be artificially restricted to business income. AO’s view was plausible & taken after enquiry; hence revision on this issue invalid. PCIT’s direction restricting deduction to business income was quashed.